A 40 year mortgage has become more and more of a viable option for potential homeowners who are looking to save as much money as they can on a monthly basis so that they can purchase property at a higher price. The 40 year mortgage has readily stepped in to partly fill this role, and it has become one of the more popular loan products to have emerged after the housing crisis.

The 40 year mortgage is not without controversy though, and many have argued that it is just another exotic home financing product that promises the world but doesn’t really deliver. The product itself should become increasingly more popular over the next few years due to Fannie Mae’s rolling out of a pilot program that is in a testing phase with several major credit unions.

If they do eventually add the 40 year mortgage to their assortment of mortgage products then it will be vital for consumers to become educated about what this loan product really is, and what are some of its major benefits and pitfalls. Nobody wants the same kind of disaster to happen again that happened with the interest-only and adjustable-rate loan products, so it is therefore imperative that potential borrowers learn as much as they can before accepting a 40 year mortgage.

The essentials of the 40 year mortgage are really not that difficult to understand. A 40 year mortgage is very much what its name suggests—a 40 year mortgage supplied to homeowners at a fixed rate. The 40 year mortgage is a fixed rate mortgage that is made at a term of 40 years instead of the more common 15 or 30 year terms. This is supposed to lower a borrower’s monthly payment by virtue of the longer payback period, and for this reason many potential borrowers have become very interested in such a loan product.

The reality is that while 40 year mortgages can provide borrowers a smaller monthly payment on average, the majority of the time the lower monthly payment will not provide the kind of savings that would make the accepting of such a loan a smart move. This is due to a number of factors and it is crucial that any potential borrower that may be considering such a mortgage understand these so that they don’t get into trouble later on down the road.

The truth is that the monthly savings are not that significant when compared with the standard thirty year fixed rate mortgage. First off, it is important to know that a 40 year mortgage will typically be made for a higher interest rate than a standard 30 year mortgage—somewhere in the neighborhood of one to two points higher. If you compare the numbers on a 40 year loan at a one to two percent higher rate when compared to a 30 year loan the monthly payment for the 40 year loan is only a slight bit lower than the payment for the 30 year loan.

This can be sometimes negligible if the rate for the 40 year note is significantly higher than the 30 year note, and many times the savings are only about a hundred dollars or less. With this little savings along with the fact that the borrower will have to pay their mortgage for an additional ten years, a forty year mortgage is probably something you want to stay away from unless you have the ideal situation to take out such a loan. Be careful as the 40 year loan is going to be making its rounds among all the major lenders over the next few years and you don’t want to get hustled into something that will end up costing you more money in the long run.